In just 200 days as chancellor Olaf Scholz has broken what his predecessors Gerhard Schroeder and Angela Merkel had been building for thirty years. The German economy has collapsed like a card tower. Terrifying statistics on the reduction of the GDP, industrial production, a drop in real incomes and a raging inflation will be released this autumn. The country is falling into a structural crisis.
Germany benefited most from the collapse of the Soviet Union. Not only was it able to restore unity – the unification of the East and West Germany gave the strongest impetus to the consolidation of Europe and the economic expansion of Germany into Western Europe, as well as into China which was buying a lot of machinery and equipment.
With the fall of the Iron Curtain, economic boundaries also collapsed. Germany gained access to the cheap (developed) resource base of CMEA countries and the post-Soviet space. German business obtained not only a huge market, but also the opportunity to integrate many countries into its economic project, the euro-zone. Over the past thirty years, something happened that the country could not achieve in the two world wars: the unification of Europe and the capture of the recourse markets and trading areas not by force of arms, but by economy. German cars and equipment have become the symbol of Europe’s economic success.
For decades, step by step, day by day, German blue-collar workers forged Berlin’s economic triumph in Eurasia. The foreign economic expansion and growth of the German economy is perfectly reflected in the trade surplus. Since 1991, it has steadily grown and remained positive during the 1998 crisis and in 2008, and even during the COVID times. For thirty years, Germany has been selling more to the outside world every month than it has been taking from it.
Interestingly, the trade turnover between Russia and Germany over the past twenty years corresponded to the notion of “partnership”. Russia bought about as much from Germany as the Germans bought from the Russians – an economic idyll. It is clear that oil, oil products, gas, and coal were mainly shipped from Russia.
Adjusted for economic crises, the trade between the two countries was growing until the 2014 revolution in Ukraine. Then Crimea happened, and the development of the partnership stalled: Russia began to buy less and less from Germany, and 2014 was followed by a marked decline in energy prices which reduced German spending on purchases in Russia.
The “partnership” could not withstand the new aggravation of relations in Ukraine. But in terms of statistics, the rift initiated by Germany looks strange: exports from Germany to Russia have fallen to the level of twenty years ago, while imports from Russia to Germany are setting records. The result is a record deficit in Germany’s trade with Russia. The emerging imbalance is a double blow to the German economy.
For example, in May 2022 Germany recorded its first trade deficit in thirty years. This suggests that the old model of purchasing cheap (post-Soviet) raw materials and producing high-tech products from them is outdated. Germany, and with it the whole of Europe, is entering a structural crisis. The problems of Germany and the entire European economy are perfectly reflected in the euro exchange rate which has dropped to a two-decade low against the dollar, almost to parity. This rate suggests that capital is fleeing the Old World, seeing no prospects there.
The basis of Germany’s balance of trade deficit, and with it of France, Italy and other countries, is formed by the sharply rising prices of energy products, primarily natural gas, the price of which on the stock market has reached 1,900 US dollars per one thousand cubic meters. This level of gas prices in the oil equivalent corresponds to the price of 300 US dollars per barrel, and the quotations are even higher on the spot (deliveries here and now). It is clear that such prices are unaffordable for the industry and the population. And given the fact that gas prices in the domestic market of the United States and Russia are ten times lower, this makes any activity that requires energy costs in Europe economically meaningless. The United States and Russia supplying themselves with oil, gas and food, look much more promising against the backdrop of Europe.
The military bravado of European politicians has also come to naught. No one is seriously discussing the seventh package of sanctions against Russia anymore. The main political thought is focused on the question of how to cope with losses. Panic is particularly noticeable in the cabinet of the Federal Republic of Germany. The German government’s strategy to replace Russian gas, prepared by Vice Chancellor Habek, “has failed and will not be able to provide the gas that is needed for the coming winter,” states Bild. The problem is banal: there are simply no LNG carriers available on the market.
Against this backdrop, the German and Canadian governments haggled for the last week about sending a Siemens turbine to Germany. The turbine, which was working on the Nord Stream pipeline, went to Canada for maintenance and got stuck there because of sanctions. As a result, the pressure in Nord Stream, which feeds Germany, dropped. And now, at the beginning of July, it became known that the turbine was on its way back. Against the background of the gas market crisis in Germany, so far at the expert level discussions have begun on the launch of the long-suffering Nord Stream 2, even though it is under U.S. sanctions.
The gas crisis in Europe, having barely begun, has shown that the health of Europe’s economy is entirely in the hands of Russia. European politicians are already ready for peace talks on Ukraine, the launch of gas pipelines, and the lifting of sanctions. In the autumn, with the first cold weather and the release of statistics on the German economy, Europe will be ready to sign the surrender act. Germany’s economic miracle is over in Ukraine.